Global Journal of Management and Business Research, B: Economics and Commerce, Volume 20 Issue 1

i. Concept of Taxation Taxation is the art or process of being taxed. It is the primary source of governmental revenue. Specifically, it is an instrument for moving resources from the private hands to the public in order to achieve some of the country’s economic and social goals (Ekine, 2011). The primary purpose of taxation is to raise revenue to meet huge public expenditure. That is, to generate or create revenue capable of financing the expenditure of government at all levels (Emmanuel and Charles 2015). Taxation is a powerful tool in the hands of the governments (federal, state or local) to achieve stated economic and social goals among which is economic growth. Furthermore, taxation according to Musgrave and Musgrave (1980) can be used extensively in regulating the pattern of consumption resulting in economic stabilization. Taxes can be used to control anti-social behaviour such as smoking, drinking of alcohol and pool betting or gambling by imposition of higher tax rate on production of such goods (Cornelius, Ogar & Oka, 2016). Moreover, Anyanwu (1993), Nzotta (2007) as well as Onyele & Nwokoacha (2016) submitted that the purposes of taxation include raising revenue for the government for administration purpose and improvement of the society. As such, it is believed that payment of tax is helpful to the person paying and the citizenry, since tax revenue is used to accomplish some economic and social goals of the country. Examples of countries that have used tax revenue to create prosperity include Netherland and Canada. In addition, tax system provides a path for government to bring together additional revenue besides income from other sources, which is needed or required in discharging its imperative obligation. A good system of taxation also presents itself as one of the most effective means of assembling a country’s domestic resources and it lends itself to make sustainable environment that will encourage growth and development. Tax revenues are usually used for the provision of public goods including the defense of country against external aggression, maintenance or upholding of law and order, and regulation of trade and business environment to guarantee social and economic justice. Strictly speaking, the entire essence of taxation is to generate revenue to advance the welfare of the inhabitants of a nation with focus on promoting the growth and development of the country’s economy through the provision of essential amenities for improved public services through proper managerial system and structures. However, over the years, these benefits in Nigeria have been insignificant and revenue from taxes has been the explanation or cause of a little proportion of total government revenue in Nigeria. ii. Concept of Pay As You Earn (PAYE) Although all withholding taxes aim to tax income when it is earned, only withholding on wages is commonly known as pay-as-you-earn (PAYE).This tax plays an important role in nearly all national tax system The PAYE is an important and easy-to-collect revenue item. Its claim on the resources of the tax administration is limited, particularly if return filing by employees is restricted to those who earn substantial other income or are entitled to significant special deductions, or both. A simple PAYE does not complicate the employer's wage administration. Compliance control can focus on employers only, rather than on individual employees. Non consolidation with other income is more acceptable when other income is also subject to withholding taxation (Uwaoma & George,2015) The PAYE is a high-yielding revenue collector in many countries. It generates a lion's share of the personal income tax and, in industrial countries, usually exceeds the revenue of the general sales tax or value- added tax (VAT) by an ample margin iii. Concept of Value Added Tax (VAT) Value Added Tax (VAT) is a consumption tax levied at each stage of the consumption chain and borne by the final consumer of the product or services. Each person is require to charge and collect VAT at a flat rate of 5% on all invoiced amount on all goods and services not exempted from paying VAT, Under Value Added Tax Act 1993,as amended. Where the VAT collected on behalf of the government (output VAT) in a particular month is more than the VAT paid to other persons (input VAT) in the same month, the difference is require to be remitted to the government on monthly basis, by the taxable person (Federal Inland Revenue Services. Information Circular No 9304).Where the reversed is the case, the tax payer is entitled to a refund of the excess VAT paid. All exports are zero rated for VAT, no VAT is payable on exports. Every person, whether resident in Nigeria, who sales goods or render services in Nigeria under the VAT Act as amended is obligated to register for VAT within six months of its commencement of business in Nigeria. The registration is with the Federal Board of Inland Revenue (FBIR). Ajakaiye, (2000) defined VAT as a “multi stage tax imposed on the value added to goods and services as they proceed through various stages of production and distribution and to services as they are rendered” which is eventually borne by the final consumer but collected at each stage of production and distribution chain. Ola (2001), said that, VAT is a tax paid at each stage of value added. It is a multi-stage tax which applies whenever goods and services are supplied by II. L iterature R eview a) Conceptual Review the producers. He also said that VAT are levied on the © 20 20 Global Journals 14 Global Journal of Management and Business Research Volume XX Issue I Version I Year 2020 ( ) B The Effect of Pay as you Earn on Social and Economic Development in Nigeria